A 10-year, 10% coupon bond, semi-annual payments, $1,000 Par, is expected to make all coupon payments...

A 10-year, 10% coupon bond, semi-annual payments, $1,000 Par, is expected to make all coupon payments but to pay only 50% of par value at maturity. What is the expected yield on this bond if the bond is purchased for $975?

		a. 10.00%
		b. 6.77%
		c. None of the options are correct.
		d. 11.68%
		e. 6.68%

Expert Solution

Semi-annual coupon = 1000*10%*6/12 = 50

Maturity value = 1000*50% = 500

Total payments = 10*2 = 20

Using calculator

Calculator
Inputs:
PV	(975.000)
PMT	50.00
FV	500.00
N	20

Output:
I/Y = IRR	3.385039%
Annual YTM	6.77008%

Answer is:

6.77%

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jeff jeffy answered 3 years ago

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